American Railroads: Decline and Renaissance in the Twentieth Century

1.
 Michigan State University, 2014
American Railroads
Decline and Renaissance in the
Twentieth Century
Professor Robert E. Gallamore
Adjunct Faculty
Railway Management Program
Broad College of Business
Michigan State University
August 11, 2014

5.
1890
Rapid Growth of RRs in last
decades of 19th Century,
and consolidation through
mergers in second half of
20th Century  today’s
major carriers and
hundreds of short lines
- 5 -  Michigan State University, 2014 5

10.
Inland Waterways – Built and Maintained by
Federal Government, and Not Tolled until 1980
• Great Lakes, St. Lawrence Seaway, and coastal system
• Also riverine “brown water” inland system
• Includes such uneconomic extensions as Arkansas River
to Tulsa, Tennessee-Tombigbee to Mobile
• Waterway user charges small initially and still far less
than full cost recovery
• Based on per gallon fuel use = inefficient
• American Railroads proposes segment charges to relate
user fees to lockage and dredging costs
- 10 -  Michigan State University, 2014

12.
Public Roads Built with Fuel Taxes Aided the
- 12 -  Michigan State University, 2014
Motor Vehicle Mode
• The “Good Roads” movement was to “get farmers out of
the mud”
• Federal, state, and local fuel excises developed local
roads and intercity highways for cars and trucks
• At first, divided highways were toll turnpikes in the East,
later freeways in the West
• Interstate and Defense Highways date from 1956 = 90%
federal construction share, states own and maintain
• Larger and heavier trucks alternately approved at state
and federal level until “frozen” at 1991 levels
• FHWA says heaviest trucks pay only ~ 60% of true costs

17.
Northeast Restructuring Culminated in Staggers Act
• Earlier regulatory reform efforts were too little, too late
• ICC kept 4R Act changes from being effectively implemented
• American Railroads asserts Staggers Rail Act of 1980 could
not have passed without example of Conrail to show problem
• AND Conrail could not have succeeded without Staggers Rail
Act reforms
• Staggers Act declared railroads needed “adequate revenues”
• These were approved unless shippers could show inadequate
competition and rates > about 180% of variable costs
• Truly “captive” shippers could use alternative (hypothetical)
“stand alone cost case” (SACC) procedures
• ICC had to consider the effect of mergers on competition, and
had to act within time limits
- 17 -  Michigan State University, 2014

18.
Post-Staggers “Mega-Mergers” Set Core of
Modern Railroad Industry Firms
• SP+Tucumcari Line of CRI&P, BN+Frisco, GTW+DT&I,
CSX, N&W+Southern, UP+MP+WP, and DRGW+SP –
all were basically end-to-end, pro-competitive mergers
• One contrary example, SP+AT&SF, was denied by ICC
• UP acquired M-K-T and C&NW
• BN merged with AT&SF to form largest railroad in 1995
• UP followed with acquisition of SP, giving trackage rights
to BNSF to soften competitive impact
• CSX and NS each sought to acquire all of Conrail, but
finally compromised to split CR 58% to NS and 42% to
CSX, an effective and pro-competitive outcome
- 18 -  Michigan State University, 2014

19.
What the Staggers Rail Act Accomplished
- 19 -  Michigan State University, 2014
Index, 1980 = 1.0
The AAR provides data and frequently updates this chart after a design developed by
R. E. Gallamore and J. R. Meyer in the late 1990s. See American Railroads, p. 424.

22.
Advancing Technology Gave Railroads Great
Productivity and Safety Benefits
• Railroads are defined as:
– locomotives (engines with pulling or pushing power)
– moving trains of rolling equipment (freight or passenger cars)
– on fixed tracks and other infrastructure facilities (such as
bridges)
– under control (rules, dispatcher instructions, signal systems)
• Railroads have been mis-characterized as having old or
obsolete technology, but in fact they have remained
young in their old age.
• One indicator of railroad progress from 1900 to 2000 is
that railroads today carry 10 times the ton-miles annually
with one-sixth the employees as in 1900.
- 22 -  Michigan State University, 2014

27.
- 27 -  Michigan State University, 2014
Five Takeaways
 US Railways are the “Enduring Enterprises”; they
survive more than they prosper.
 Continuing investment, and with it – deployment of new
technology – is key to competitive survival.
 To warrant new investment, rate of return must improve,
and that means real increases in revenue and lower
costs.
 Revenues will not increase to full potential without
improvements in service reliability – and these will be
based on information technologies.
 Railway customers, suppliers, employees, shareholders,
and the economy all benefit from smarter policies toward
the industry.